After the presidential election, inflation comes to the fore

The Venezuelan government strategy to postpone repricing of regulated products is almost over

The exchange policy of the Central Bank of Venezuela (BCV) and the Ministry of Finance is going on the drain (File photo)

EL UNIVERSAL

Saturday December 01, 2012 12:00 AM

Upon the reelection of Venezuelan President Hugo Chávez, the government is clearing the way to inflation, thus far contained.

With intent to upgrade people's purchasing power, government authorities put the rise of regulated goods on hold until after the presidential election. Having attained the political objective, a period has started where staples will be unavoidably more expensive.

Over the first 10 months of 2012, the price of regulated products has advanced 10.9% on the average, compared to 25.2% the same term last year. If shortage is to be prevented from reaching serious levels, there no choice but acknowledging inflation.

According to the Central Bank of Venezuela (BCV), in October, 16.1 out of every 100 goods were not available to consumers, the highest level in nine-month term.

Hot US dollar

Besides procrastinating over upregulation of essential goods, the government strategy to curb inflation includes an exchange policy that is falling apart.

Through October, accumulated inflation has reached 13.4% over 22.7% the same term of 2011. This is mainly the result of en masse imports at a cheap, official exchange rate of 4.30 bolivars per US dollar, which, incidentally, seems to have its days numbered.

Public accounts show a heavy mismatch between income and expenditure. As a result, the government aims to offset the unbalance with devaluation. In this way, it will be able to swap more bolivars for petrodollars.

Barclays Capital forecasts that the price of the dollar provided by the Foreign Exchange Management Committee (Cadivi) is likely to increase from 4.30 bolivars to 6.50 bolivars, whereas the exchange rate traded by the Transaction System for Foreign Currency Denominated Securities (Sitme) is expected to go from 5.30 bolivars up to 7.80 bolivars. Therefore, imported goods will be more expensive.

Very liquid

Consider also the soaring public spending translated into a strong injection of funds in the domestic economy. In addition, more local currency for the same amount of products will sooner than later bolster prices.

The larger amount of money accounting for 56% over the past 12 months will have an impact on prices and make the fight against inflation more difficult.

The BCV and the Ministry of Planning have promised to curb inflation next year at 14%-16%. Analysts and private financial institutions are not that optimist.

Think-tank Ecoanalítica puts inflation in 2013 around 26%, and at 18% this year. While such an index would signify slowdown compared to 2011, it remains high. As a matter of fact, it would be three times the hike of prices in the rest of Latin America.

Translated by Conchita Delgado

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